Big Banks Near Major Regulatory Relief Since 2008

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 updated on June 25, 2025

Big banks just got a massive break. On Wednesday, June 25, 2025, US regulators unveiled a proposal to roll back stringent capital rules, potentially freeing up billions for lending and market activity.

According to Yahoo! Finance, US regulators, including the Federal Reserve, FDIC, and OCC, proposed a significant easing of the enhanced supplementary leverage ratio (eSLR) for the nation’s largest banks, marking one of the most substantial regulatory shifts since the 2008 financial crisis.

This move targets major players like JPMorgan Chase (JPM), Bank of America (BAC), Goldman Sachs Group (GS), and Morgan Stanley (MS). These institutions currently face a 5% eSLR requirement, forcing them to hold extra capital based on their size.

Details of the Proposed Capital Rollback

The proposal slashes the eSLR for bank holding companies by 1.4 percentage points, translating to roughly $13 billion in relief. For subsidiaries, the cut is even steeper at 10 percentage points. This could reduce subsidiary capital by a staggering $210 billion for systemically important banks, per Fed Governor Michael Barr.

Why the change? Regulators aim to boost lending and increase demand for US Treasurys, addressing liquidity issues seen during the 2020 COVID-19 market stress when banks struggled as intermediaries in the $30 trillion Treasurys market.

Banks have long argued that the eSLR punishes them for holding safer assets like Treasury bonds. This rollback could unshackle capital for more productive uses.

Federal Reserve Vote and Dissenting Voices

The Federal Reserve governors approved the proposal on June 25, 2025, with a 5-2 vote, advancing it to public comment. However, dissent came from Fed Governors Michael Barr and Adriana Kugler, who warned of heightened systemic risks.

Barr criticized the move, stating, "Firms will likely use the proposal to distribute capital to shareholders." He doubts it will meaningfully support Treasury intermediation as intended.

Kugler echoed similar fears, noting, "this reduction... will increase systemic risk." Their concerns highlight a core tension: balancing market fluidity with financial stability.

Broader Deregulatory Push Underway

This proposal isn’t an isolated act. Treasury Secretary Scott Bessent signaled this as part of a wider deregulatory agenda, while Fed Vice Chair for Supervision Michelle Bowman called it a "first step" in a speech on June 23, 2025.

Bowman emphasized, "simple reforms... could improve Treasury market functioning." Future adjustments might target surcharges for global systemically important banks or asset thresholds for regulatory rules. The Fed also plans a conference on July 22, 2025, to discuss the broader capital framework. Investors should watch these developments closely.

Market Implications and Investor Takeaways

For center-right investors skeptical of overregulation, this rollback could signal a return to market-driven efficiency. Analyst Jaret Seiberg of TD noted it’s "broadly positive" for major banks, especially trading-focused ones. But risks linger if capital is misused.

What’s actionable here? Consider overweighting stocks like JPM or GS if this proposal finalizes, as freed-up capital could juice returns. Yet, diversify—systemic risks aren’t fiction, as 2020 reminded us.

Ultimately, this is about getting the government out of the way while keeping the system sound. Fed Chair Jerome Powell, as early as February 2025, backed easing the leverage ratio for liquidity’s sake. Stay tuned for public comments and the Fed’s next moves—they’ll shape wealth-building opportunities ahead.

About Melissa Smith

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